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Dueling Fools: Amazon.com Bull

Amazon's priming itself for future growth.

Judging by its plunging share price last week, investors are feeling pretty darn bearish about Amazon.com(NASDAQ:AMZN) right now. Clearly, I'm not one of them. I think Amazon.com is one of the companies best positioned to excel in the changing world of Internet retail.

Sure, lots of people have been making fun of Jeff Bezos' boast that there are now 80 kinds of Jell-O available on Amazon.com through the company's new grocery feature. Amazon's breadth and depth of distribution has always made it one of the Internet's premier names, so make Jell-O jokes as much as you like. As Chris Anderson pointed out in his recent book The Long Tail: Why the Future of Business Is Selling Less of More, there's even a long tail for unlikely products such as flour.

Amazon's last quarter was a bummer. I can't blame investors for getting tired of hearing about surging revenues at the expense of profits. Bezos continues to thumb his nose at profit margins as he invests in technology and offers low-priced (or even free) deals on shipping.

At any rate, I'm sure my formidable opponent Chuck will note that the drop in profitability was disappointing, despite the healthy 22% increase in sales. I suppose Amazon's long-established fondness for sacrificing margins to drive sales might tempt some investors to believe that the company's unwilling to change, well on its way toward extinction on the ever-evolving Internet.

Not so fast. There's method to this madness. I've often thought that Amazon, given its status as many Web shoppers' first destination, is well-positioned to capitalize on the up-and-coming elements of Web 2.0. It led the Web in user-generated ratings, reviews, and recommendations, and I think the site's "Your Media Library" feature speaks volumes about the company's long-term strategy.

Current initiatives like Amazon Prime -- for which Jeff Bezos has been quite the cheerleader -- aren't just about driving sales in the short term; they're also building community for the long term. It's in Amazon's best interest to bring as many customers on board as possible, and the company's doing just that by offering low-cost shipping. It's not only locking in loyalty, but also building a content base that will help drive sales.

Along those same lines, it's no secret that Amazon has digital content strategies in mind. If you consider the high margins on digital content, you can imagine that once all the pieces fit together, digital distribution will be able to drive ever-higher sales -- and improve Amazon's profit margins.

I'm admittedly disappointed that these elements haven't come to fruition faster. A movie service to rival Netflix(NASDAQ:NFLX) has long been discussed, but Bezos has seemed reluctant to confront that formidable rival here in the U.S. Meanwhile, rumors have consistently flown that Amazon has plans for some sort of video download product -- but no dice on that front yet, either.

I can't blame investors for getting nervous at this point. Some of Amazon's brightest advantages seem to be building awfully slowly. We all know that "slow and steady wins the race," but in practice, it's difficult not to feel nervous, especially with some unexpected twists and turns along the way. But if Amazon weren't investing in its future, it would risk becoming complacent, and sacrificing future growth for short-term profits -- not exactly what a long-term investor wants to see. If the Internet changed and Amazon didn't, well, that would prove to be a real problem.

I think that Amazon investors' recent panic -- and the company's plunging stock price -- offer a splendid opportunity to buy into one of the Internet's most impressive companies. Amazon's not resting on its many laurels, and in my opinion, it has a bright future ahead.

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Author

Alyce Lomax is a columnist for Fool.com specializing in environmental, social, and governance (ESG) issues and an analyst for Motley Fool One. From October 2010 through June 2015, she managed the real-money Prosocial Portfolio, which integrated socially responsible investing factors into stock analysis. Follow @AlyceLomax